OIG Advisory Opinions
No. 03-01: Physician Employment Does Not Violate Exclusion
On January 13, 2003, the OIG issued an advisory opinion analyzing whether the employment of a physician was permitted under the physician's exclusion from Medicare, Medicaid, and other federal health care programs. The OIG concluded that the employment of the physician was acceptable based on the facts of the particular case.
In November 2000, a physician surrendered his state license to practice medicine after a complaint was filed against him. Based on the surrender of his license, the OIG excluded the physician from federal health care programs effective March 20, 2001.
A company that provides data services to clients proposed employing the physician. One division of the company, though not the one that would employ the physician, had developed and now supports a product that computerizes x-ray images and stores them on computers for archival and reference purposes. The product is sold to hospitals and radiology clinics and is reimbursed, in whole or in part, by federal health care programs. The company is not involved, directly or indirectly, in the delivery of health care services or the billing of health care services. Neither does the company provide utilization review, medical social work, or any other kinds of health care administrative services.
The physician would be responsible for: (i) business development, including the development of sales and marketing materials; (ii) software and database development; (iii) writing reports, doing research, and generating report deliverables; and (iv) developing a smoking cessation program for industrial clients. The physician would have no contact with federal health care program beneficiaries or provide health care services. The physician would report to the Vice President for Business Development and would not be involved in the division of the company that supports and markets the product.
In light of the physician's exclusion, no payment may be made by Medicare, Medicaid, and other federal health care programs for any item or service furnished by the excluded physician during the period of exclusion. In addition, the OIG is authorized to impose civil monetary penalties against any person or entity that employs or contracts with the excluded physician to provide items or services that are reimbursed by a federal health care program, if the person or entity knows or should know of the exclusion. For further background about the effects of exclusion, the OIG cited its Special Advisory Bulletin, "The Effect of Exclusion from Participation in Federal Health Care Programs." 64 Fed. Reg. 52,791 (Sept. 30, 1999).
The OIG began its analysis by noting that even though the company did not directly submit claims to federal health care programs, the employment of the physician by the company would potentially implicate the physician's exclusion because the company indirectly furnished items and services reimbursable under federal health care programs. Nevertheless, the OIG acknowledged that entities receiving reimbursement from federal health care programs may employ excluded persons in limited situations, i.e., where the provider pays the excluded party's salary, expenses, and benefits exclusively from private funds and where the services furnished by the excluded party relate solely to non-federal health care programs.
In this particular case, the OIG concluded, based on the representations of the company, that the physician would furnish no items or services that are reimbursable, directly or indirectly, by any federal health care program and would have no association with the division that provides the product that is reimbursed by federal health care programs.
Advisory Opinion 03-01 reinforces the point that the OIG views the effects of its exclusion authority broadly, but that excluded parties may be permitted to be employed by health care companies in limited circumstances.
No. 03-02: OIG Approves Hospital Ownership Interest in Single-specialty ASC
On January 13, 2003, the OIG issued an advisory opinion assessing whether the proposed acquisition of an ownership interest in an established single-specialty (orthopedic) ambulatory surgery center (ASC) by a hospital would violate the antikickback statute, 42 U.S.C. § 1320a-7b(b). Although the proposed ownership arrangement could potentially generate prohibited remuneration under the antikickback statute, the OIG concluded that it would not impose administrative sanctions.
A freestanding orthopedic ASC was owned by a physician group practice, indirectly through a wholly owned holding company. Under the proposed arrangement, a hospital would acquire an ownership interest in the ASC. The group practice consisted of 16 shareholder physicians. Eight physicians met the one-third practice income test. The remaining eight physicians derived more than one-third of their practice income from performing procedures that either met the definition of an ASC surgical procedure or required a hospital operating room setting.
Prior to submitting the advisory opinion request, the parties executed a two-phase option agreement. Under Phase I, the hospital would purchase a 15 percent ownership interest in the ASC in exchange for a capital contribution and a line of credit for the ASC. The group practice agreed to guarantee its pro rata share of the line of credit. Phase I was contingent upon a favorable advisory opinion. Under Phase II, the hospital had the option of increasing its ownership interest to 40 percent in exchange for an additional capital contribution and an additional line of credit. The parties certified that the hospital's capital contributions were consistent with fair market value.
The proposed arrangement was contingent upon five ancillary agreements:
The hospital agreed that hospital-affiliated physicians would not make referrals directly to the ASC, although they may refer patients to the group or group physicians. In addition, the hospital would not take any action to require or encourage hospital-affiliated physicians to refer patients to the ASC, group, or group physicians. The hospital also would not track referrals by hospital-affiliated physicians to the ASC, group, or group physicians. Finally, compensation of hospital-affiliated physicians would not relate directly or indirectly to the volume or value of referrals to the ASC, group, or group physicians.
The OIG began its analysis by noting that joint ventures between physicians and hospitals are susceptible to fraud and abuse. Nevertheless, the OIG acknowledged that precluding joint ownership of ASCs may place hospitals at a competitive disadvantage.
In analyzing the proposed ASC ownership arrangement, the OIG identified five elements that made the arrangement particularly susceptible to fraud and abuse. First, the hospital was in a position to make or influence referrals to the ASC, group, and group physicians by using its control and influence over hospital-affiliated physicians. Second, eight of the group physician did not meet the one-third practice income test of the safe harbor. Third, the group would hold its investment in the ASC through a holding company rather than directly through the group. Fourth, not all of the ancillary agreements complied with the terms of the applicable safe harbors. Fifth, the proposed arrangement was contingent upon the execution of the Noncompetition Agreement.
For each of the five elements of concern, the OIG found sufficient safeguards to conclude that the risk of fraud and abuse was sufficiently low to not impose administrative sanctions. First, the hospital had agreed to take certain actions to avoid making or influencing referrals to the ASC, group, and group physicians. Specifically, the hospital would not take any action to require or encourage hospital-affiliated physicians to refer patients to the ASC, group, or group physicians; the hospital would not track referrals by hospital-affiliated physicians to the ASC, group, or group physicians; and compensation of hospital-affiliated physicians would not relate directly or indirectly to the volume or value of referrals to the ASC, group, or group physicians. Second, the OIG noted that the eight group physicians who did not meet the one-third practice income test of the safe harbor routinely performed interventional procedures requiring at least an ASC level of support and, thus, were more likely to be users of the ASC rather than passive referral sources. Third, the OIG noted that the use of a "pass-through" entity did not substantially increase the risk of fraud and abuse because the group would receive the same return on its investment as if it had invested directly. Fourth, the OIG was reassured by the fact that fees under the ancillary agreements would not be renegotiated more often than annually and would be fair market value. Fifth, the OIG did not find the Noncompetition Agreement objectionable because it was narrowly tailored to achieve a legitimate business purpose.
With respect to the ASC safe harbor, Advisory Opinion 03-02 provides guidance as to the actions that a hospital can take to avoid making or influencing referrals to an ASC itself as well as physician owners of an ASC. Advisory Opinion 03-02 also clarifies that the one-third practice income test can essentially be satisfied if the physicians routinely perform interventional procedures requiring at least an ASC level of support. Finally, Advisory Opinion 03-02 clarifies that a group practice can hold an interest in an ASC through a pass-through entity as long as the group receives the same return on its investment as if it had invested directly.
With respect to safe harbors in general, Advisory Opinion 03-02 reveals that failure to satisfy the minimum one-year term requirement of most safe harbors is not fatal as long as the fees under the agreement would not be renegotiated more often than annually and would be fair market value.
Lastly, Advisory Opinion 03-02 is important because it recognizes that noncompetition agreements can serve legitimate business purposes.
No. 03-03: OIG Rejects Pharmaceutical Company's Program to Cover Medicare Part B Cost-sharing Amounts
OIG Advisory Opinion 03-03, issued February 3, 2003, analyzes a pharmaceutical company's proposed use of an existing patient assistance program to pay Medicare Part B cost-sharing amounts for financially needy beneficiaries using the company's drugs for immunosuppressive therapy after organ transplant surgery. The proposed arrangement was analyzed under the antikickback statute and the civil monetary penalty provision (CMP) against inducements to beneficiaries, 42 U.S.C. § 1320a-7a(a)(5). The OIG found that the proposed arrangement did not constitute grounds for the imposition of CMPs, but could potentially generate prohibited remuneration under the antikickback statute.
A pharmaceutical company manufactures and markets drugs used for immuno-suppressive therapy after organ transplant surgery. The drugs are taken as part of a daily regimen that begins after surgery and continues for the rest of the patent's life. The drugs are self-administered on an outpatient basis and cost several thousand dollars per year. There are therapeutically equivalent drugs.
Medicare Part B currently provides lifetime coverage for self-administered immunosuppressive drugs. The drugs are reimbursed at 95 percent of the average wholesale price (AWP) of the therapeutically equivalent drug with the lowest AWP. Medicare beneficiaries are responsible for a coinsurance payment of 20 percent of the allowable Medicare benefit. For most patients, the coinsurance payments exceed $1,200 per year. Historically, the pharmaceutical company provided its drugs at no cost to financially needy, uninsured patients through a Patient Assistance Program (PAP). Under the proposed arrangement, the company would reimburse financially needy Medicare beneficiaries for cost-sharing amounts incurred in connection with the drugs. Patients would be free to obtain the drugs from the pharmacy of their choice.
The OIG initially analyzed the proposed arrangement under the CMP against inducements to beneficiaries. The OIG noted that the pharmaceutical company did not bill Medicare or Medicaid and, thus, did not constitute "a particular provider, practitioner, or supplier" under the CMP authority. Because it was the pharmacy that actually billed Medicare and patients were free to choose their pharmacy, the proposed arrangement did not violate the CMP.
The OIG then analyzed the proposed arrangement under the antikickback statute and found that it implicated the statute. The OIG cited several aspects of the arrangement as increasing the risk of fraud and abuse. First, the proposed arrangement was "squarely prohibited by the statute." The company was paying beneficiaries who use its drugs. In addition, the arrangement provided a financial advantage over competing drugs. Second, the proposed arrangement could increase costs to the Medicare program by insulating beneficiaries from their financial liability for the company's drugs. Third, the OIG notes that there are non-abusive alternatives for assisting financially needy patients. For example, the company could provide free drugs to financially needy beneficiaries, so long as no federal health care programs are billed for the drugs. The OIG concludes by observing that nothing in the advisory opinion prohibits a pharmacy from waiving cost-sharing amounts on the basis of a good faith, individualized assessment of the patient's financial need.
In most instances, the OIG analyzes the CMP against inducements to beneficiaries and the antikickback statute similarly. However, Advisory Opinion 03-03 illustrates a subtle difference between the statutes. The CMP is limited to efforts to induce purchases from "a particular provider, practitioner, or supplier." A pharmaceutical company is not covered by this definition because it does not bill Medicare. The antikickback statute, on the other hand, is much broader.
No. 03-04: OIG Approves Provision of Medical-Alert Pagers
In a February 3, 2003 advisory opinion, the OIG analyzed a proposed program to provide free medical-alert pagers and pager monitoring service to home-bound patients while they receive home health services from the company. The proposed program was analyzed under the antikickback statute and the CMP against inducements to beneficiaries. The OIG concluded that it would not impose administrative sanctions in relation to the proposed program under either the CMP or the antikickback statute.
A for-profit provider of home health services proposed providing free medical-alert pagers and pager monitoring service to homebound patients while they receive the home health services from the company. The purpose of the pagers and service would be to facilitate a rapid response to patients who have fallen, are injured, or otherwise need emergency assistance. The retail value of the pagers and service was $20 to $30 per month or $240 to $360 per year. The company was reimbursed for its home health services by private insurers and federal health care programs.
The OIG began its analysis by noting that the proposed program implicated the CMP because it involved the provision of free items and services. The OIG observed that the existing exception to the CMP was not applicable, because it is limited to $10 per item and $50 in the aggregate, per year.
Nevertheless, the OIG noted that CMS permits home health agencies to "adopt telehealth technologies that it believes promote efficiencies or improve quality of care." Medicare Intermediary Manual § 201.13. The OIG concluded that the pagers ensure prompt emergency assistance and potentially forestall more expensive care. Therefore, the provision of the pagers did not violate the CMP because it was reasonably related to the delivery of home health services. Although the OIG largely ignores the antikickback statute in its analysis, it concludes that it would not impose sanctions under the antikickback statute, presumably for the same reasons.
Advisory Opinion 03-04 is not broadly applicable to other types of providers. Instead, it is limited to situations such as this where CMS has made an affirmative statement related to the promotion of telehealth technologies.
No. 03-05: OIG Rejects Multi-specialty ASC Ownership Arrangement
On February 6, 2003, the OIG issued an advisory opinion finding that a proposal for joint ownership of an ASC by a hospital and a multi-specialty group practice could potentially generate prohibited remuneration under the antikickback statute, given that a substantial number of the physicians in the multi-specialty group practice did not personally use the ASC.
A hospital and a multi-specialty group practice had formed a limited liability company to plan, develop, and operate an ASC. The hospital owned 49 percent, and the group owned 51 percent. The group had 52 physician shareholders. Any dividends were divided equally between all group shareholders. The group also employed other physicians who are not group shareholders. While some of the group physicians were surgeons, most were primary care physicians (family practitioners, internists, pediatricians, and obstetricians/gynecologists). The employment-related compensation of the group physicians was unrelated to their referrals to the ASC.
The OIG began its analysis by considering whether the ASC safe harbor was applicable to the proposed joint ownership between the hospital and multi-specialty group practice. The OIG noted that the ASC safe harbor had been narrowly drawn to provide protection only if the physician-investors actually use the ASC on a regular basis or the physician-investors are in the same specialty and are unlikely to refer substantial business to "competing" physician-investors.
In the proposed arrangement, the physicians in the multi-specialty group practice fit neither category. First, few of the physician-investors would actually use the ASC on a regular basis. Second, in a multi-specialty group practice there is a substantial likelihood of cross-specialty referrals within the group. The OIG noted that the threat posed by the proposed arrangement was no different than that posed by separate ownership interests in an ASC by unaffiliated surgeons and primary care physicians.
Interestingly, the OIG ignored the fact that the ownership interest of the hospital was what really created the problem under the antikickback statute and ASC safe harbor. If the group owned 100 percent of the ASC through its group practice, there would not be a problem because you cannot conspire with yourself under the antikickback statute. Thus, it is acceptable for a multi-specialty group practice to own an ASC outright, but not jointly with a hospital.
No. 03-06: OIG Approves OB/GYN Physician Services at Below-Market Rates to Women's Health Clinic
On March 19, 2003, the OIG issued an advisory opinion regarding the provision of below-market-rate physician services to a women's health clinic. The proposed arrangement was analyzed under the antikickback statute. Although the OIG found that the arrangement implicated the antikickback statute, it ultimately concluded that the usual risks to federal health care programs that the statute is intended to protect against were minimal, particularly where the remuneration in the form of physician services inures to the public, not private benefit.
The arrangement involved a nonprofit charitable corporation that owns and operates an acute care hospital and various outpatient facilities (Medical Center) and a county-operated clinic providing women's health services to low income women (the Clinic). The parties entered into a two-year contract for the Medical Center to provide physician services - at below-market rates - to the Clinic by moving its obstetrics and gynecology (OB/GYN) residency program to the Clinic.
The arrangement resulted from a 2002 request for proposal in which the Clinic sought a contract for physician and medical director services at the Clinic in exchange for a fixed annual fee. The Clinic also requested physician coverage for Clinic patients who are hospitalized. The Medical Center offered to move its OB/GYN residency program to the Clinic and accept as payment an amount equal to the additional costs that would be incurred by the Medical Center in running its residency program from the Clinic as opposed to the Medical Center. The Medical Center also agreed to provide inpatient hospital services to the Clinic's patients without regard to the patients' ability to pay.
The physicians providing the services in the Clinic were bona fide employees of the Medical Center. They would not be restricted from referring patients to any other entity and would advise each patient in writing of the patient's freedom to choose a hospital and a physician for the patient's inpatient hospital service needs. The Clinic billed, collected, and retained fees for the physician services provided at the Clinic.
The OIG's analysis of the arrangement focused on the public benefit, i.e., the "best possible price for the Clinic's physician coverage," that would result from the arrangement. The OIG found that although the annual fee was below fair-market value, the fee was not unreasonable because the Medical Center would be given an opportunity to "strengthen its residency program by exposing residents to a broad range of medical conditions." In addition, the OIG concluded that any benefit from referrals generated by the arrangement would be offset by the Medical Center's obligation to provide inpatient hospital and physician services to Clinic patients, regardless of the patients' ability to pay. The OIG also noted that where the contract was open to bidders consistent with relevant contracting laws, there would not be an adverse impact on competition. Finally, the OIG found that the arrangement was unlikely to cause overutilization or increase program costs where the Clinic services were primarily labor and delivery, because Medicaid reimburses for such costs on a prospective fixed fee basis.
Advisory Opinion 03-06 is very results oriented. Although the OIG recognizes that the arrangement implicates the antikickback statute, the OIG carefully explains how the arrangement addresses a number of the concerns underlying the antikickback statute. Of particular interest is the OIG's discussion of the fact that the prohibited remuneration inures to the public, not private, benefit. It will be interesting to see how this analysis plays out in the future as others test the OIG's tolerance for arrangements that violate the antikickback statute but are defended as a means of ensuring "the best possible price for the County...."
No. 03-07: OIG Approves Hemodialysis Arrangement
OIG Advisory Opinion 03-07, issued March 19, 2003, analyzed under the antikickback statute a proposed arrangement to provide hemodialysis services to indigent patients without regard to their ability to pay and to purchase certain hemodialysis equipment. The OIG concluded the proposed arrangement could potentially generate prohibited remuneration under the antikickback statute, but nevertheless determined that it would not impose administrative sanctions based on the existence of sufficient safeguards to protect federal health care programs.
The parties to the proposed arrangement were a state political subdivision that owned and operated a countywide health system (Hospital District) and a Medicare-certified end stage renal dialysis provider (ESRD Provider). Under the proposed arrangement, the ESRD Provider would (1) provide acute hemodialysis services at two of the Hospital District's hospitals, (2) provide chronic hemodialysis services to certain indigent patients, and (3) purchase certain hemodialysis equipment from the Hospital District at fair market value. Acute hemodialysis is generally provided on an emergency, temporary basis. Meanwhile, chronic hemodialyasis involves a regular course of dialysis administered on a routine basis over a number of years.
Historically, the Hospital District provided both acute and chronic hemodialysis services. In 1995, the Hospital District decided to discontinue providing chronic hemodialysis with the exception of 19 "grandfathered" patients who continued to receive chronic hemodialysis services because they were unable to obtain the services elsewhere and because they met the Hospital District's indigence requirements.
Given the difficulties in providing only acute hemodialysis, the Hospital District issued a formal request for proposal (RFP) for the provision of acute hemodialysis, the provision of chronic hemodialysis, and the purchase of certain hemodialysis equipment. As a result of the RFP process, the Hospital District and the ESRD Provider entered into a written, one-year contract, under which the ESRD Provider would provide acute hemodialysis services at the Hospital District's hospitals in exchange for a per treatment fee, and chronic hemodialysis to the 19 grandfathered patients at no cost to the Hospital District or the patients. The ESRD Provider also agreed to accept all referrals from the Hospital District for patients needing chronic hemodialysis. Finally, the ESRD Provider would purchase all of the Hospital District's hemodialysis machines for a price representing fair market value.
The OIG analyzed the arrangement under the antikickback statute and the potentially applicable personal services and management contract safe harbor. 42 C.F.R. § 1001.952(d). The OIG began its analysis by noting that the antikickback statute was implicated. In particular, the OIG was concerned that the ESRD Provider might have agreed to provide free chronic hemodialysis services to indigent patients in exchange for referrals from the Hospital District for other federal health care program business. The OIG found that the arrangement did not satisfy the personal services and management contract safe harbor because the compensation for the services was not set in advance. Nevertheless, the OIG indicated that it would not impose administrative sanctions because the proposed arrangement had been carefully designed to provide adequate safeguards.
Despite long-standing concerns about the tying of referrals of indigent business to referrals of paying business, the OIG identified several factors in the proposed arrangement that should mitigate the OIG's concern under the antikickback statute. First, because Medicare reimbursement for chronic hemodialysis is subject to a prospective payment that includes most associated items and services, there would be little risk of increased cost to the program. Second, the potential for overutilization for certain items and services not included in the prospective payment was minimal given that the ESRD Provider had certified that such utilization would be comparable to the utilization by its existing patients with similar medical conditions. Third, the OIG also found minimal potential impact on competition since the Hospital District used a competitive bidding process in connection with obtaining a contract. Fourth, the ability for the Hospital District to influence referrals of insured patients was "unclear," particularly when insured patients are typically referred to dialysis providers by their physicians.
Finally, and probably most significantly, the OIG noted the public benefit provided by the arrangement. If the Hospital District were to receive remuneration in the form of avoiding costs associated with providing care to indigent or uninsured patients (and the OIG noted that this might not be the case), the benefit inures to the public, not private benefit. Further, since the free chronic hemodialysis services would be provided by community facilities not part of the contract, the arrangement would be viewed as an effort to have the local community share in the care of indigents.
Advisory Opinion 03-07 is also results oriented. Despite the recognition that that the arrangement implicates the antikickback statute, the OIG carefully explains how the arrangement addresses a number of the concerns underlying the antikickback statute. Of particular interest is the OIG's discussion of the fact that the prohibited remuneration inures to the public, not private, benefit.
No. 03-08: OIG Rejects Per-patient, Per-day Management Fee for Inpatient Rehab Unit
In OIG Advisory Opinion 03-08, issued April 3, 2003, the OIG reviewed a proposed arrangement to develop and manage an acute inpatient rehabilitation unit of a hospital by a separate corporation (the Requestor) that would be compensated on a per-patient, per-day basis. The proposed arrangement was analyzed under the antikickback statute. The OIG refused to issue an advisory opinion protecting the proposed management arrangement, finding that the level of risk was not sufficiently low to warrant prospective protection.
The Requestor proposed to develop and manage a distinct part inpatient rehabilitation unit for a hospital (the Unit) in exchange for a monthly management fee based on a fixed amount per patient, per day. Under the proposed arrangement, the Requestor would provide all patient care personnel, except nurses, and a leadership team that would include a program director, community outreach coordinator, and a medical director. The nurses would be provided by the hospital.
The Requestor's leadership team would conduct outreach activities to persons in a position to make or influence referrals to the Unit, such as physicians, hospital discharge planners, and third-party payors' utilization review personnel. The medical director would be a hospital staff physician engaged as an independent contractor by the Requestor. The medical director may have his or her own medical practice and possibly refer patients to the Unit. The contract with the medical director would meet the requirements of the personal services and management contracts safe harbor, 42 C.F.R. § 1001.952(d), as well as the personal service arrangement exception to the Stark self-referral law, 42 C.F.R. § 411.357(d).
The OIG began its analysis by noting that the Requestor's management arrangement with the hospital would not fit within the personal services and management contracts safe harbor because the aggregate compensation paid by the hospital would not be set in advance. The OIG also reiterated its long-standing position that per-patient, per-click, and per-order payment arrangements are generally disfavored under the antikickback statute.
While the OIG acknowledged that certain aspects of the proposed arrangement appeared to reduce the risk under the antikickback statute, the OIG cited six factors that raised concerns. First, the OIG recognized that the PPS payment methodology for inpatient rehabilitation units would reduce the risk of excessive length of stay but it would not affect the incentives of the parties to fill all beds. Second, the OIG questioned the effectiveness of the requirement that 75 percent of the Unit's patients had to require intensive rehabilitation services for certain conditions. Third, the requirement that hospital-employed nurses provide pre-admission screenings would have little impact because the nurses would share a common goal of making the Unit a financial success. Fourth, the Unit would be under the medical direction of a physician in a position to refer patients. Fifth, the Requestor's leadership team would be performing marketing and community outreach. Sixth, the per-patient, per-day management fee could "cloak a success fee."
Advisory Opinion 03-08 illustrates the OIG's aversion to management fees that are anything other than flat fees. Here, the OIG appears to have stretched in identifying concerns with the proposed per-patient, per-day fee.
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